When putting together a programmatic strategy here in China, one of the most important tasks is determining which model of programmatic the client is most suitable for.
There are mainly four types of programmatic models – programmatic premium, preferred deal, private marketplace, and open exchange – each with distinct advantages and disadvantages, and appropriate for different clients as well as campaigns.
When developing a strategy for a particular client, I evaluated the business model of both local and Western ad-tech companies. Through this exercise, I came to the conclusion that programmatic in China has its own flavor.
The local companies play by a different set of rules and even have unique selling points compared to their Western ad-tech counterparts. So this series of columns will introduce China’s own flavor of the four programmatic models, and the differences to the Western ad-tech ecosystem.
First up, I will be covering programmatic premium.
Programmatic Premium Vs. Automated Guaranteed
This type of programmatic is usually directly purchased with media with reserved inventory as well as fixed cost per mile (CPM). Publisher inventory is usually cream of the crop inventory, sold at a higher CPM through a programmatic way. The first difference between China and the Western world lies in simply what we like to the call the model.
To reduce confusion, the terms “programmatic premium,” “programmatic direct,” “programmatic guaranteed,” and “automated guaranteed” all mean the same thing.
In the Western ad-tech space, the term “automated guaranteed” is used more, simply because the model’s core selling point is reducing media booking processes through programmatic automation.
For example, companies like Adslot can automate the entire media booking process through their platform. This automation saves a lot of execution work from the ad sales team, so that they can focus more on building better client relationships. However, this model simply doesn’t work in China.
Firstly, most publishers will not allow ad serving so not much of the execution work can be automated.
Secondly, publishers do not see the value of automating the media booking process, because one thing that China is NOT short on is manual labor.
Hence in China, the term “automated guaranteed” is not used much because nothing is truly automated with this model.
Instead, the local market likes to use the term “programmatic premium” and “programmatic direct.” The reason is twofold: First, publishers usually like to emphasize on the concept of premium, so that they can either mark up the programmatic inventory or sell it at higher base price. Second, publisher relationships are still very important for Chinese advertisers, especially for the purposes of controlling negative PR.
So focusing on the word “direct” places a greater emphasis on the inventory still being purchased directly through the media, not going through any sort of intermediary, i.e. ad network or demand-side platforms (DSP).
OTV Incremental Reach Through the Concept of Volume Multiplier
Another interesting difference between China and the West is regarding the selling point of programmatic premium.
As you can see above, the selling point in the Western ad-tech space for this model focuses mainly on process automation, but not much on the targeting aspects of programmatic. But in China, online television (OTV) programmatic premium companies, like ReachMax, focus specifically on more accurate targeting through a combination of data management platforms (DMP) as well as the concept of volume multiplier.
Now DMP-based buying mechanisms are used in all programmatic models, but that’s largely because the other three types of models do not commit to an impression volume or fixed pricing. This essentially lets us pick the impressions that are considered more on a target base on either a first-party or third-party DMP.
But for programmatic premium, both the impression volume and pricing are at a fixed rate. So no matter if the inventory is on target or not, I will still have to buy every impression. And here’s where the concept of volume multiplier comes in. Prior to a campaign, a publisher has to commit to a specific multiplier number, meaning that they will have to give the advertiser X times the amount of total fixed volume. Then through ReachMax, every impression from a publisher is checked against the DMP to see if it’s considered on target. If yes the impression is purchased; if not then the impression is returned in real time back to the publisher.
For example, if my volume multiplier is 2, CPM is fixed at 25RMB, and total inventory volume at 1,000,000 impressions (total budget of 25,000RMB), then a publisher will have to give me a total of 2,000,000 impressions, while the extra 1,000,000 is returned to the publisher because they were considered not on target.
Hence the ReachMax model will provide incremental reach with the exact same total budget, because the volume multiplier greatly enlarges my selection pool. For example, if I buy 100 impressions and 50 were considered on target, then my reach is at 50 percent. But If I buy 100 impressions by picking from a pool of 200 impressions, then the probability of picking on target impressions greatly increases.
Through this programmatic premium model, advertisers get the benefit of incremental reach without having to sacrifice inventory quality, as well as maintaining a direct relationship with the publisher.
DSPs Running Programmatic Premium Trading Desks
The above example of ReachMax is a truly a local market innovation that provides concrete benefits to advertisers. But the other Chinese ad-tech companies have also innovated in this space, but through questionable practices as well as non-transparent operations.
The example I like to give here is a Chinese-based business running a programmatic premium trading desk for a multi-national company operating in China. DSP’s are not the correct partners to execute programmatic premium because of their existing affiliations in the ad tech ecosystem.
This model of programmatic premium is indeed China-specific – in no other markets in the world will you find a brand bespoke premium trading desk that also buys and sells its own inventory on the side for other clients. This essentially presents a conflict of interest, the conflict is manifested in the below points:
- Programmatic premium usually consists of top-quality publisher inventory. If a DSP also operates their own inventory pool through ad exchanges, how can a brand ensure that these two pools of inventory sources won’t mix? The fact that the DSPs have their own inventory invokes many questions on what actual inventory is being used for a brand’s campaigns? The inventory bought through programmatic premium? Or the inventory bought through the open exchanges?
- The other important aspect is data ownership. When programmatic premium inventory is bought through a DSP, they will have access to the advertiser’s first-party DMP. What’s stopping a DSP from using that sensitive data on a competitor campaign that’s buying through their open exchange channel?
As you can see, having an existing business model in open exchange should entirely forbid DSPs from also playing in the programmatic premium space. This happens here in the China market, perhaps because the market is not mature enough yet for advertisers to understand the implications, but I reckon one day even in China advertisers will place greater emphasis on transparency and minimizing conflicts of interest.
In my next column, I will be covering preferred deal models in China.
* Understand more about China’s unique programmatic ecosystem at the ClickZ Live Shanghai digital marketing conference (26-28 May 2015).
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